Human Resource Metrics Must Measure Contribution of HR to Financial Outcomes
Human Resource metrics provide evidence of the effectiveness of your human resource function in contributing to better financial outcomes.
It forms part of performance management.
These metrics are performance measures of how well human resource activities are accomplishing HR objectives that are linked to your business objectives.
You can use the information gained from the metrics to review your human resource strategic plan.
How does an HR Scorecard Look Like?
One way of presenting the human resource metrics is by using an HR Balanced Scorecard.
The Scorecard specifies the strategies under four perspectives usually put under four quadrants.
By the way, this scorecard is based on the Balanced Scorecard introduced in 1992 by Harvard Professor Robert Kaplan and David Norton, President of Balanced Scorecard Collaborative.
When applied to HR, the perspectives can appear as stated below.
- Financial Perspective
Answer to the question: "What HR strategies must I have in order to satisfy my customers?"
- Customer Perspective
Question: "What do my customers actually want?
How will I present HR so attractive that my customers will take notice?"
- Internal Perspective
"How do I satisfy the stated wants of my customers?"
"How do I make the HR function and activities consistent with what my customers want?"
- Organization Learning Perspective
"How will my HR people learn and improve in order to achieve my organization's vision, mission and objectives?"
"How does the new information affect my HR vision, HR mission and objectives?"
State the goals and measures under each perspective, and the competencies required to achieve them.
Technology and a service provider with a proven track record can help you to effectively implement an HR Scorecard. It goes without saying that making the right choice is important.
In "The HR Scorecard: Linking People, Strategy, and Performance" , the authors present "a seven-step process they call an HR Scorecard, specifically designed to embed human resources systems within a firm's overall strategy and manage the HR architecture as a strategic asset."
Deciding What to Measure
It is not possible to measure every HR activity. It is not necessary. It is not easy to manage such a long list of measures.
Measure only the crucial, the important HR activities that contribute to the bottom-line of your organization.
For example, you can measure the effectiveness of recruitment activities, training and development, compensation and benefits, and performance management. Positive results can only lead to higher productivity.
ROI of Human Resources is an HR Performance Measure
The HR Return on Investment (ROI) indicates whether or not the cost of human resource is justified by the benefits derived by your organization.
Salaries and compensation in-kind usually form the largest portion of an organization's overheads. Ask serving employees whether what they do is contributing positively to higher productivity and thus, profitability.
One specific area of concern is the training budget. Do training programs enhance the competencies of employees? If so, the budget is justified.
A good HR ROI further convinces senior management on the importance of HR. It must show how your human resource activities can effectively contribute towards productivity.
It must identify the main HR performance drivers in order to have high productivity in a high performance workplace (HPW)or organization.
As an HR Manager or an HR professional you have opportunities of knowing more about many important information about people management.
Performance Measure Specialist, Stacey Barr of Australia proposes not more than ten (10) performance measures.
Review performance measures form time to time.
Human Resource Metrics Presentation
There are many ways of presenting the Human Resource metrics depending on the business activities of your organization, the environment, and the performance drivers chosen.
One way is the Balanced Scorecard. (See above.)
There are two sides in metrics, and for that matter human resource metrics. Strategies provide the link between HR activities and business objectives.
By adopting the right HR strategies, there is a high possibility that organizations will accomplish their business objectives.
Where the business objectives are achieved but there is no apparent linkage between HR strategies to business objectives, this may indicate a "fluke". This will rarely happen due to the
uncertainties in a dynamic economic and business environment.
Naturally, you want to move to the position where you can clearly see that the HR metrics you have adopted led to the positive financial outcome.
When business objectives are not achieved, one of the very possible reasons is that there is no linkage under the HR metrics implemented.
It can happen that HR activities and business activities go their separate ways. Surely, you can predict the outcome in such a situation. But it is almost impossible that organizations will end up in this position. But it can happen.
Ensure that every important possibility having a bearing on HR and organizational productivity is considered when deciding to formulate your human resource metrics.
Productivity is the main objective of HR metrics.
Further Matter that Needs Attention
Identify what are the HR metrics that your organization must measure and what are the activities that are nice to measure, and what activities you need not bother about.
It is important to understand all the important aspects of your organization's activities before preparing performance measures. If you do this you can assure yourself that your HR metrics can measure what truly contribute towards better human resource management thus helping in improving organizational productivity.
Do not rush to implement Human Resource metrics. You may overlook important matters.
On top of that, what Michael O'Malley, editor, consultant and writer, had written may offer further help.
He mentioned that HR professionals are at risk of giving "undue attention to measurement" and that this "tends to minimize that part of the profession that is unique and adds the greatest value: providing expert opinion on human behavior."
Strategic implementation of Human Resource metrics is necessary. How else can you determine whether your human resources strategies are adding value to your organization.
If this is done, this can result in a higher degree of achieving organizational objectives based on your strategic human resource management plan.
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